The rupee strengthened sharply against the US dollar in late trade on Wednesday, gaining 52 paise as some foreign banks sold the greenback, likely on account of overseas investment into domestic markets, traders said.
The domestic currency closed at 81.25 per US dollar as against 81.77 at previous close, Bloomberg data showed. In 2023, the rupee has appreciated 1.8 per cent against the US dollar.
The domestic currency was also boosted by a weaker US dollar index as investors anticipate a slowdown in the pace of the Federal Reserve’s rate hikes, given data showing easing inflation in the world’s largest economy.
The US dollar index, which measures the greenback against six major currencies, was at 101.91 at 3:30 pm IST on Wednesday as against 102.39 at previous close.
“There were some flows today, which had come through the foreign banks, it’s essentially an FPI flow. We also did not hear of the RBI being there (to buy dollars) in a meaningful way today,” said Bhaskar Panda, HDFC Bank’s executive vice-president of overseas treasury.
Dealers also cited possible overseas inflows hitting the market ahead of the Rs 20,000 crore follow-on public offer (FPO) of Adani Enterprises, which is due to open for subscription on January 27.
According to currency traders, a lack of significant purchases of the greenback by the Reserve Bank of India at lower dollar-rupee levels had also propped up the rupee on Wednesday.
The rupee has been volatile this week, shedding a cumulative 0.5 per cent on Monday and Tuesday before recovering all the losses and staging a turnaround on Wednesday.
After the rupee appreciated to around 81.30 per dollar last week from around 82.70 per dollar, the central bank was said to have been purchasing the greenback in order to shore up its reserves. This had prevented the rupee from appreciating much beyond the 81.30 per dollar mark, dealers said.
According to traders, an unwinding of bets in favour of the US dollar in the offshore market had spilled over into the domestic currency market, leading to a stronger rupee on Wednesday.
“Rupee has appreciated today on likely news of unwinding happening in NDF (non-deliverable forwards, or the offshore market) and onshore markets,” said Ritesh Bhansali, vice president, Mecklai Financial Services.